At least with cash-out refinances, you know how much you can get based on the amount you plan to take out of your equity plus your outstanding loan balance. With streamline refinances, the maximum loan amount you can refinance for is subject to a number of factors, which we shall discuss below.
Streamline Refinance Mortgage Limits
To recall, the streamline refinance program administered by the FHA and coursed through lenders (i) aims at lowering the monthly payment (principal + interest) of the existing FHA loan, and (ii) does not involve any cash back except for allowed minor adjustments at closing not over $500.
Generally speaking, the streamline refinance loans are subject to and may not exceed the statutory mortgage limits set by the FHA, excluding the upfront fee for the mortgage insurance premium which is to be settled at closing. There may special loan cases that are exempt from this rule.
Calculating the Maximum Loan Amount Insurable by FHA
The FHA will guarantee these streamline refi loans and the extent to which this guaranty covers would depend on whether the loan has an appraisal or none.
A. Main or Second Home
For owner-occupied properties, the maximum base loan amount would be whichever is the lesser of: (i) the current mortgage’s outstanding principal balance as of the month before the mortgage disbursement, plus the interest due on the current mortgage and the MIP due on the current mortgage; or (ii) the current mortgage’s original principal balance, less any UFMIP refund.
It would look like this: maximum insurable mortgage = outstanding principal balance/original principal balance + new UFMIP – UFMIP refund.
For properties that are not owner-occupied like second homes or investment properties, they will be refinanced based on (i) the outstanding loan balance as of the month before the mortgage disbursement date, or (ii) the original principal balance, including the UFMIP, whichever is lesser. Again, the UFMIP refund, if any, is excluded from the maximum mortgage amount.
B. Cash back Requirement
Per FHA guidelines, the lender is allowed to use estimates in calculating the maximum loan amount provided that it does not result in the borrower receiving more than $500 in cash back on the date of the mortgage disbursement. If the estimates do result in a cash back greater than $500, the lender may have to reduce the borrower’s outstanding principal balance to meet the cash back requirement.
Moreover, the lender is required to secure the current mortgage’s payoff statement.
C. CLTVs and Subordinate Financing
Any existing subordinate financing must be subordinated to the streamline refi mortgage. A new subordinate financing may be permitted if its proceeds are used either:
- to reduce the existing mortgage’s principal amount, or
- to finance the discount points, origination fees, and other closing costs incurred in the refinance.
The FHA does not have a maximum combined loan-to-value limit for streamline refinances.
In the previous guidance, the calculation of the maximum loan amount would depend on whether the streamline refi has an appraisal or none. The current handbook notes that appraisals are not required on streamline refinances. And whether the lender has received one does not have a bearing on the eligibility or calculation of the maximum mortgage amount on streamline refinances.